EXPRESS DRILLING SYSTEMS LLC,NOIDA vs. DCIT INTERNATIONAL TAXATION,, DEHRADUN

O R D E R PER PRASHANT MAHARISHI, A. M. 1. This appeal is filed by the assessee against the order of the ld CIT (A)-2, Noida dated 31.10.2016 for Assessment Year 2008-09 by which appeal filed by assessee against order passed by the Deputy Commissioner of Income Tax, International Taxation, Circle – 1, Dehradun made on 29/05/2015 u/s 143 (3)/144C of The Income Tax Act was partly allowed. 2. The assessee has raised the following grounds of appeal for Assessment Year 2012-13:- “GROUND NO. 1 On the facts and circumstances of the case, the Ld. CIT(A) erred in disallowing an amount of INR 200,505,600 u/s 40(a)(ia) of the Act on the premise of the criterions laid down by the proviso to section 201(1) being not met by the appellant. In doing so, the Ld. CIT(A) did not take cognizance of the fact that in the Assessment Order passed, the AO categorically mentioned the submission of Form 26A as per rule 31ACB of the Income-tax Rules by the appellant. GROUND NO. 2 On the facts and circumstances of the case, the Ld. CIT(A)/AO has erred in disallowing the cost of material without appreciating the same was incurred "wholly and exclusively" for the purpose of the business.”

3. Facts shows that assessee is a non- resident, nondomestic company for the purpose of Indian taxation. It has entered into a Consortium agreement with Mineral Exploration Corporation Ltd and Shiva Vani oil and Gass exploration services Ltd on 5 December 2006. Consortium has been awarded a contract by ONGC for providing integrated turnkey services for CBM development in central Parbatpur and pilot wells.

4. Assessee filed its return of income on 30 September 2012 declaring total income of Rs. Nil. During the course of assessment proceedings, the assessee company submitted audited accounts. The assessee was issued a notice to substantiate its claim deduction of expenses as per profit and loss account along with the return of income. On examination of the information, learned assessing officer noted that a sum of ₹ 200,505,600/– was paid to subcontractors without deduction of tax at source, it is mentioned in tax Audit report and disallowed by Assessee while filing Return of Income. However in assessment proceedings, assessee filed a written submission wherein it has been contended that disallowance under that Section cannot be made as assessee is not an ‘assessee in default’. Assessee furnished form number 26A as per rule 31ACB of the Income Tax Rules. The learned AO noted that the assessee is taking a benefit of the proviso inserted u/s 201(1) inserted with effect from 1 July 2012. He rejected the claim of the assessee that the proviso inserted with effect from 1/7/2012 is retrospective in nature. He therefore made disallowance of ₹ 200,505,600/- on account of payment made to the contracts for services on which no tax was deducted. Learned AO further held that assessee has not filed the revised return of income and therefore the claim of the assessee is also not entertained in view of the decision of the honourable Supreme Court in 284 ITR 323. Assessee has also debited ₹ 38,519,708 as cost of material. Assessee was asked to justify claim of the expenses as according to the AO negligible business activity has been carried out and the major business was carried out in assessment year 2011-12, where assessee has not debited any expenses on account of cost of material. Therefore, LD AO was of view that expenses debited on this account does not relate to the year under consideration and therefore those are prior period expenditure. Accordingly the disallowance of ₹ 38,519,318/- was made. Ld AO passed draft assessment order. Assessee did not file any objection before the learned dispute resolution panel and therefore the final assessment order was consequently passed u/s 143 (3) read with Section 144C (3) (b) of The Income Tax Act on 29/0 5 /2015 determining the total income of the assessee at ₹ 203,786,360/–.

5. Assessee aggrieved with the order of the learned assessing officer preferred an appeal before the learned CIT – A wherein the appeal of the assessee was partly allowed. He dismissed claim of assessee for disallowance u/s 40 (a) (ia) of The Income Tax Act holding that assessee has not made the claim in the return of income which is mandatory. He applied the decision of the honourable Supreme Court in 284 ITR 323. According to him, assessee should have filed the revised return. During the course of appellate proceedings, assessee was asked to produce evidence in this regard that payees have furnished returns u/s 139, included this sum in their return, and paid tax thereon. ld CIT (A) held that assessee could not brought anything on record to suggest that the receipt of ₹ 200,505,600/– has been taken into account for computing income in the return of income of the payee and the payee has paid the due tax on the income declared in its return of income. He further noted that assessee has also failed to furnish a certificate to this effect from an ‘accountant’ in the prescribed proforma. In view of this, he confirmed the disallowance u/s 40(a) (ia) of the act. With respect to the cost of material claimed by the assessee, he held that the cost of material is 9% of the revenue reported and appellant could not produce any evidence for allowability of the above claim. He further held that the disallowance under that head was also for the reason of nonproduction of the relevant purchase bills. He held that assessee has not produced anything either before the assessing officer or before him and therefore he confirmed the disallowance. He passed appeal order on 31 October 2016. Assessee is aggrieved with that order has preferred this appeal contesting the above disallowances.